Conversations We Need To Have

Tag Archives: Personal Finance

Recently, the stock market suffered two of the largest one day drops in history. Even if you are not heavily invested in the market, it does affect you. Before we dive in, we need to give a short explanation of how the stock market works. NOTE: There are numerous factors to consider too lengthy to list here. Therefore, this is brief overview of the market in very general terms…

Companies offer stocks (individual parts of the company) that can be bought by investors. The money from stock purchases is used to run companies. Investors buy stocks at a certain price that is determined by numerous factors. As these factors change, so does the value (price) of each stock. Investors make money by buying stocks as a lower price, and selling them when they are at a higher price.

To prevent massive selloffs as stock values increase, dividends (money the company pays out to investors as its stock’s value increases) and stock splits are offered to shareholders. So shareholders want companies to make profits so stocks values rise, dividends rise, and they make more money on their investments. Any factor that prohibits or slows this “process” is hostile to a shareholder and could result in a selloff of stocks. This is how the stock market decreases.

“The historic Dow Jones drop that occurred on Monday was in part a reaction to Friday’s jobs report, which showed stronger wage growth than at any point since 2009.”

What does this mean?

The stock market reacts negatively to higher wages earned by employees. The latest monthly jobs report included data that showed a wage increase. While this is great and welcomed news for employees, it is not great news for the companies they work for. The obvious reason is the companies are paying out more to employees, so their costs of doing business go up. If not leveraged correctly, a company loses money when it increases wages for its employees. So how does this affect the stock market? Read the next key point…

“As companies sink more money into wages, there’s less left for shareholders.”

What does this mean?

Shareholders, otherwise known as people who have invested money in a company, expect to make money off their investment. They don’t want to a little money. They want to make a lot of money! This means their interest (making money) is in direct conflict with your interest (higher wages as an employee). It is crystal clear: as companies sink more money into wages, there’s less (money to make off their investments) left for shareholders. Who wins this battle? Shareholders, who are necessary because of the money they invest in a company, or wage earners, who are necessary because of the work they do for a company.

“Wage growth also contributes to concerns about inflation — another drag on corporate profits and the expectation thereof, which is what motivates the stock market.”

What does this mean?

Wage growth contributes to concerns about inflation (a rise in the overall cost of living due to a rise in the cost of goods and services). Higher wages mean a company has to recover losses due to paying higher wages. An easy way to do this is to raise prices of their goods and services. This leads to inflation (notice the expression “another drag on corporate profits”). If higher prices result in fewer sales, corporate profits take a hit here, in addition to the hit taken from paying employees higher wages. These two losses mean less money for shareholders, which will lower the stock market if they decide to sell their stocks.

Now that we have a better understanding of the stock market, one must think about a few things and ask a couple questions:

If you do not buy stocks, or have the “disposable income” to do so, why not?

Who does the company you work for value more: you as their employee or their shareholders?

Who is not in favor of wages rising for employees, because it could negatively affect the stock market?

Who benefits most when the stock market rises?

Who tries to get out of the stock market when it starts to decline?

Who is more likely to own large amounts of stock: a poor/middle class person or an upper class/ wealthy person?

Why are economics, finance, and the stock market not taught more in public grade and high schools where public education is free?

Please understand this issue is all about color. The color I am referring to is not white or black. The color is green (money). When we realize green controls everything AND it “trumps” all other colors, we will understand this has nothing to do with most issues that divide us. It has nothing to do with race, greed, skin color, gender, religious affiliation, sexual orientation, or political affiliation. The stock market only deals with money. For those heavily invested in the market, anything that causes values to increase is good. On the flip side, anything that causes value to go down is not good. Unfortunately, this includes higher wages for working people.

In the Unites States, we have an antiquated education system. It is another great disqualifier for far too many students. Our current system is still based on the outdated calendar cycle of when crops were planted and harvested. This is because in the past children were needed to harvest crops alongside their parents. The school calendar was created with this in mind. Children would be available to plant crops in the late summer months, and then be available again at the beginning of the next summer to harvest them. As a result, generally speaking the school calendar starts in September and ends in June. Today, although there are plenty of farmers who may still benefit from this setup, the overwhelming majority of American parents do not require their kids to harvest crops. It takes away from the time some students need just to avoid being disqualified because of their lack of a quality education.

In theory, American children could go to school for an extra month during the summer, or the school calendar could be adjusted throughout the year to allow for an extra month for education. Adding an extra month to the school calendar seems like a radical idea because we have all been conditioned to accept the current setup. However, when we look at the steady decline of our educational system as a whole, most people agree that something must be done. Studies show American students are slowly falling behind their counterparts in other countries around the world. This can be traced to the amount of time spent in the classroom. Some countries like Japan require their students to attend school longer than we do in our country. The result is the students in these countries outpace American students in various educational disciplines.

When we look closer at the demographic studies about the American education system, we see that rural and suburban schools generally have better results than urban and inner-city schools. This is called the education (or achievement) gap. Think about it, students who are in urban and inner-city schools are more likely to be behind their counterparts in rural and suburban schools. Because the world is now a global marketplace, this means urban and inner-city schools produce students who are even farther behind their counterparts in many foreign countries. This disparity becomes another great disqualifier, both at home, and in competition against students around the world.

For the sake of analysis, we want to focus on the education gap that exists in America and how it becomes a great disqualifier. If you go to an overcrowded school with limited resources and funding, you are at an educational disadvantage. If you go to a lower-rated school with underachieving students and teachers, you are at an educational disadvantage. If you go to an underperforming school with discipline and behavioral issues, you are at an educational disadvantage. The amazing thing about all of these situations is that many students overcome these challenges. However, far too many students do not. They are disqualified because of their lack of a quality education.

Now let’s look at higher education. Competition for slots at colleges and universities across the nation is fierce. The difference between getting accepted and getting passed over still boils down to academic performance. If a student from an urban or inner-city school does not perform as well as their suburban counterparts, the probability increases that they will be left behind when it is time to apply for college. The inferior education disadvantaged students receive can disqualify them for college, or at least hinder their chances to go to an elite school. Their education also hampers their ability to keep pace should they get accepted into a college or university. Once, again, education can serve as a disqualifier for these students.

We, not government leaders, educators, or school officials must ask why we allow our educational system to disqualify so many students. It is up to the people, not the school bureaucracy or elected officials to ask these questions and start to find solutions. While I am on a roll, I believe we must ask the following questions about the education most of our children receive…

Why are schools taking the arts and music out of their course electives?

Why do we make kids take higher level mathematics when few of us ever use those concepts in real life?

Why don’t we add civics back into the curriculum for all students so they can understand how government SHOULD work?

As a final thought, at no point in this post did I mention race. For those who see race in everything, you can rest assured that this is more about education as a disqualifier based on class, not race. Poor people who are educationally disadvantaged come in all colors and ethnicities. Therefore, they are all in the same boat. When they realize this, I think they can come together and influence change. Maybe this change will be at the ballot box. Perhaps it will occur at the PTA meeting. Either way, top-down solutions from our government and educational leaders have not helped enough.I believe that the change our educational system needs will have to come from the bottom-up; parents and students must lead the charge.

Education should not be another one of the remaining great disqualifiers…

Throughout the course of my life, I have learned that there are still a few disqualifiers that make it difficult for many people to live the lives they want. A quick history lesson can set up the concept of disqualifiers. In the past (not today of course), disqualifiers were gender, race, religion, sexual orientation, and economic status, just to name a few. If you were on the wrong side of one or more of these things, you could have been disqualified from something our society had to offer. That was then, not now!

At this point, one must ask why were disqualifiers set up and used in the first place. Didn’t the Declaration of Independence and US Constitution clearly spell out the rights of all American citizens? The obvious conclusion is there has always been a reason to disqualify people. There has always been a reason to separate people. There has always been a reason to exclude people. There has always been a reason to disqualify people. Eventually the legality of many of these disqualifiers came into question. In time, most of these disqualifiers became illegal so people could not be so easily excluded.

Now you would think that with all of the barriers that disqualified so many taken away, more people would be able to make progress toward their dreams and goals. Yet there is a growing segment of people in our society who are just as far away from their goals as ever. Why is that? I believe it is because disqualifiers still exist today. These disqualifiers are more subtle, and much harder to try and overturn in our courts of law. One of these disqualifiers that need to be revealed is credit (personal finance).

By adulthood, most people have discovered that credit “makes the world go round”. If that discovery happens after mistakes with credit, people quickly learn that our credit is one of the remaining great disqualifiers. Simply put, once you make mistakes with your credit, it is very hard to erase the effects of those mistakes. If you do not understand the nature of the problem and continue to make credit mistakes, you can easily dig a hole that will take years to overcome. Unfortunately, many never overcome their credit issues. For them, credit becomes a lifelong disqualifier.

Think about it, if you have poor credit you are disqualified from a lot of things. You probably pay higher for your insurance, because poor credit HAS TO MEAN you are a risky person. If you have credit cards, you are being charged a higher interest rate, because poor credit HAS TO MEAN you are irresponsible. Did you buy a car or house? If so, you are paying more than someone with good credit, because poor credit HAS TO MEAN you need to pay more just to prove your worthy of receiving the loan you got. With more jobs requiring credit checks, there is a possibility that you missed out on one, because poor credit HAS TO MEAN you would not make a good employee.

These are just a few examples of how poor credit can disqualify you for low rates, and in some cases, prevent you from consideration at all. The sad part about it is so many people are blind to this issue until it is too late. Most of the time, the people who are oblivious to how credit works are the SAME people who were disqualified for so many years in our society: the poor, minorities, women, and immigrants. Let that sink in for a second. Now think about this: many of the reasons why these people were previously disqualified have been ruled illegal, thanks to our undeniable rights and the court systems that uphold them. Now, these same people are being disqualified for things that ARE LEGAL and hard to fight against in our courts of law. Credit is one of these remaining disqualifiers.

The question I have is why is this allowed to happen? I believe that is the real issue: people are not taught about credit and personal finance. Without guidance, too many people are doomed to make mistakes with their credit. which will disqualify them at different stages of their lives. It drives me crazy because there is a simple fix to the problem. Why do we allow a lack of knowledge to disqualify people? Why don’t we teach our ALL OF OUR CHILDREN about credit during their formal education?

I know there are hundreds of schools that do teach about credit, or some level of financial literacy. Maybe they teach about balancing a checkbook. Maybe they teach about interest rates. Maybe they teach about personal finance. However, I know for a fact, that hundreds of schools DO NOT teach our students about these things. To me, personal finance and credit management should be mandatory classes in both grade school and high school. I went to decent schools, but I only received minimal (if any) information about personal finance and credit.

I am not one to neither throw out conspiracy theories nor pull the victim card out of my pocket, but this issue makes me wonder. Millions of people struggle with their credit, and poor credit disqualifies so many of them. Everyone is entitled to free public education, yet credit and personal finance is not a part of that education in many schools. It seems like a no-brainer: teach students how to use credit properly, and less adult will make mistakes with their credit, which will disqualify them from things our great society has to offer. Yet this is not being done during the formal educational process!

Here is my conspiracy theory: the system of finance and credit HAS TO HAVE a certain amount of people who mismanage their credit. If everyone knows how to manage their credit AND more people did it right, it would cause our financial systems to collapse. I know it sounds crazy, but to me it also sounds crazy to try to disqualify people because of gender, race, religion, sexual orientation, and ECONOMIC STATUS. Wait a minute, poor credit leads to poor economic status for millions of people!

So I want to know, why is credit one of the remaining great disqualifiers?